Monday, December 26, 2016

Defense Cost Accounting Standards - Part 1

Late last Friday, when everyone had left work for the Holidays, the President signed the 2017 NDAA (National Defense Authorization Act). The President's signature was not unexpected though perhaps the timing of it took some by surprise. Today and in the next few postings, we will take a look at some of the provisions that are most likely to impact Government contractors. Of course the $618 billion spending will lead to a lot of work for contractors but after award, then what. We want to look as some of those provisions that not too many are focusing on right now.

The first topic we will discuss is Sec. 820 of the NDAA, Defense Cost Accounting Standards. This section has three main purposes: (i) revive the Cost Accounting Standards Board, (ii) establish a Defense Cost Accounting Standards Board, and (iii) privatize some of the audit work being performed by the Defense Contract Audit Agency.

Revive the Moribund Cost Accounting Standards Board. The Cost Accounting Standards Board (CASB) has been dormant for at least three years. The new provision establishes additional duties for the Board, requires them to meet periodically, and issue reports on their activities.

New duties of the CASB. The new rule establishes three new enumerated duties for the CAS Board:

  1. The Board must ensure that the cost accounting standards used by Federal contractors rely, to the maximum extent practicable, on commercial standards and accounting practices and systems.
  2. Within one year after the date of enactment (October 1, 2019) and on an ongoing basis thereafter, review any existing Cost Accounting Standards and conform them, where practicable, to Generally Accepted Accounting Principles, and
  3. Annually review disputes involving such standards brought to the ASBCA or CBCA or Federal courts, and consider whether greater clarity in such standards could avoid such disputes.

Periodic Meetings. The new rule requires the CASB to meet not less than once each quarter and publish in the Federal Register notice of each meeting and its agenda before such meeting is held.

New reporting requirements. The new rule requires the CASB to submit a report to the congressional defense committees, the Committee on Oversight and Government Reform of the House of Representatives, and the Committee on Home land Security and Governmental Affairs of the Senate describing the actions taken during the prior year to (i) conform the cost accounting standards to GAAP and (ii) to minimize the burden on contractors while protecting the interests of the Federal Government.

Tomorrow we will look at Sec 820's provisions for a new Defense Cost Accounting Standards Board (DCASB).

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